Session Three: Regulating the Global Economy for Global Growth
11:30AM – 12:45PM, November 13, 2009
HOW WILL THE RULES OF THE GAME CHANGE? IS BIG GOVERNMENT HERE TO STAY? WILL THE RESPECTIVE ROLES OF GOVERNMENT AND BUSINESS BE RE-DEFINED?
A dialogue on governance between:
- The Hon Chief Executive Donald Tsang of Hong Kong, China
- HE Shaukat Aziz, former Prime Minister of Pakistan
- Dr Yoon-Dae Euh, Chairman, Presidential Council on Nation Branding and Chairman, Steering Committee, Korea Investment Corporation
- Ms Carol Hansell, Senior Partner, Davies Ward Phillips & Vineberg LLP and Chairperson, Corporate Governance Committee, American Bar Association
- Mr George Kirkland, Executive Vice President, Global Upstream and Gas, Chevron Corporation
Moderated by Mr Brian Dumaine, Global Editor, FORTUNE
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In the context of a world economy in urgent need of sustained recovery and growth, there remain many questions about the role of government in regulating business. Many cite deregulation as one of the prime causes of the Lehman Brothers and ensuing global financial meltdowns. To address this issue, the dialogue on Global Economic Governance brought together voices from government, corporate governance, and business. The goal was to articulate a more integrated and coherent vision for relations between government and business in the context of a world economy in urgent need of sustained recovery and growth.
This dialogue’s participants included Hong Kong Chief Executive Donald Tsang, former Pakistan Prime Minister Shaukat Aziz, Korean Investment Corporation Chairman Dr Yoon-Dae Euh, corporate governance expert Carol Hansell, and Chevron Executive Vice President George Kirkland. They focused on the mutual expectations held by government and business for the type of leadership needed to generate sustainable recovery and growth, and the optimal framework for private-public partnership in overcoming challenges such as climate change and poverty reduction.
Mr Tsang’s and Mr Aziz’s led off the panel with their speeches. Speaking from the perspective of government, they stressed that the current crisis demands a shift in both economic and governance paradigms. As the current crisis continues to impair economic fundamentals of both developed and developing countries, they argued that policy-makers should broaden their focus beyond stimulating recovery alone and towards proactively shaping a sustainable and equitable mode of recovery. Taking Hong Kong’s experience following the 1997 Asian financial crisis as an example, Mr Tsang said this meant identifying new industries for growth, while providing the government support needed to optimally develop those industries. Nonetheless, he said, market forces would be needed to determine whether the industries would survive. Mr Tsang illustrated his belief that the role played by governments in the economy must therefore be complementary to the operation of the free market rather than one which aims to interfere with it.
Ms Hansell and Mr Kirkland then in their addresses, spoke to issues of how best to mitigate protectionism in the face of domestic pressure. In the context of contemporary government responses to the current crisis, they said, good leadership demands that governments not cave in to domestic pressures for protectionism. This is because free trade is a critical driver of recovery and sustained prosperity in the future. Ms Hansell continued, arguing that the onus is also on governments to assume responsibility for ensuring successful financial regulations that do not impede or dwarf recovery. As governments work to bail out and regulate the economy, both Ms Hansell and Mr Kirkland emphasized that one of the primary responsibilities of government is to understand the impact of their regulation, thereby instilling confidence in the investing public. Ms Hansell cautioned that despite cries to regulate corporate executive pay, governments are not well equipped to determine executive compensation, and that this may have unintended consequences.
At the same time, panelists pointed out that corporations must be motivated to act in the broader interests of both community stakeholders as well as their shareholders. Keeping regulations minimal should not mean government abdication of responsibility, they said. Government and business leaders must agree to put in place mechanisms to increase transparency, accountability, and fairness in the functioning of markets. Such mechanisms are needed to maintain both investor and consumer confidence in the markets.
In constructing the structures for global governance structures, the dialogue participants agreed that an international regime with broad and uniform regulatory principles could be helpful for ensuring that capital operates in a consistent environment globally. Another key reform measure stressed by all discussants was the need to move away from compensation based on short-term performances. Instead, participants advocated dispensing compensation instead in the form of shares with a penalizing mechanism of clawbacks should long-term performance falter.
The dialogue participants acknowledged that there are still many deficiencies in government and financial regulatory bodies, such as fragmented regulatory structures, a lack of financial expertise that prohibits the ability to accurately evaluate and pre-empt risk, and a lack of wisdom and experience that allows for the anticipation of problems. The participants admitted, however, that the current crisis presents the opportunity to address these problems, similar to how Asian governments learned from the 1997 Asian financial crisis and reconstructed their economic fundamentals in a sounder manner that has even helped to shelter them from the worst effects of the present crisis.
Another opportunity that presents itself in the current crisis, as Dr Euh pointed out, is for overseas development assistance and the work of international financial institutions to be targeted towards boosting the consumption capacity of the poorer developing countries. This can be in the form of either concessional financing or microfinance. To pave the way for sustainable growth, Dr Euh noted, it is also important for development assistance to take into consideration climate financing initiatives for poorer countries.
The panelists concluded by agreeing that both government and business leaders must take responsibility for the current crisis. The future of effective economic governance, they said, requires that both sectors evaluate the limitations of their leadership exposed by the current crisis and work to both reform and harmonize their leadership and governance efforts.
